Sunday, April 18, 2021

My love letter to The Sydney Morning Herald

It’s not something any hard-bitten journalist should admit, but I’m in love with The Sydney Morning Herald. Have been since, at the age of 26, I quit chartered accounting in disillusionment and stumbled into a cadetship at the Herald. I quickly realised I’d found the only place I wanted to be.

After four years they gave me the title of economics editor and sat me in an armchair with a licence to air my opinions about anything economic. It’s probably the only job I’m capable of doing with any competence. I’ve been so fulfilled by my work that, in 47 years, I’ve never wanted another job on the paper and, certainly, never wanted to move to another paper.

I suspect that by now I’m actually addicted to column-writing and to staying one of the Herald‘s roosters rather than one of its many feather-dusters. When my designated retirement date arrived, I had no desire to hang up my boots and luxuriate on the Herald’s more-than-generous super scheme. And, apart from Jessica Irvine, detected no desire by my colleagues to wave me off.

But I promise you (and Jessica) this: I’ll be out of here the moment I find I’ve worn out my welcome with our readers or my bosses, or realise I’m starting to lose my marbles. That I’m still keen to learn more about the economy and to work rather than play, I credit mainly to three gym sessions a week with my physio trainer, Martin Doyle. Exercise is good for mental as well as physical fitness.

I did feel I should at least stay on to do my bit in helping the Herald make the seemingly improbable “transition” – what a fashionable word that’s become – from “legacy asset” to successful digital “masthead”. Fortunately – and touch wood – we’ve passed that test now we’ve switched from chasing clicks to seeking digital subscriptions.

The thought of the Herald ceasing to be appalled me. As Australia’s oldest metropolitan daily newspaper, for 190 years it’s been one of the pillars on which Sydney rests. I get an enormous kick from being a tiny part of that grand history – for, I realise to my amazement, almost a quarter of its existence. It tickles me that, in the days when governors of NSW and Anglican archbishops of Sydney were recruited from England, so were editors of the Herald.

I’m proud of the many big names to have worked for the Herald at some point in their career. Banjo Paterson was our correspondent covering the Boer War. C.E.W. Bean was a Herald writer before becoming the federal government’s official war correspondent in World War I. Angus Maude, one of our last English-export editors, became Maggie Thatcher’s Paymaster General. I remember Thatcher’s daughter Carol working for a few months in our newsroom.

The playwright and speech writer Bob Ellis’ Herald career lasted 11 days. Columnist and poet Clive James lasted longer before he went off to England to make his name. I remember author Geraldine Brooks cutting a swathe through our feature writers’ room before she went off to New York to make her name. The others wrote one feature a week; she wrote one a day.

Together with her journalist husband George Johnston, Charmian Clift was a celebrity in 1960s Sydney before the word had been invented. This was explained by the years they’d spent living on a Greek island, where (we’ve learnt only recently) they were friendly with some Canadian singer named Leonard and his girlfriend Marianne. Charmian wrote a highly popular weekly column in the Herald, before ending her life.

William Stanley Jevons, a celebrated English neo-classical economist and polymath of the 19th century, discoverer of the Jevons paradox, spent part of his early career working at the Sydney Mint. He didn’t work for the Herald, but he did write letters to the editor. Hearing that made me proud to work where I did.

The Herald has changed greatly over the years I’ve been here and, leaving aside the many journalists we lost as we made our painful adjustment to the digital revolution, mainly for the better. Some years ago, someone got the idea of honouring our longest-serving journos by presenting them with a framed copy of our front page from the day they joined the paper. I was shocked by how dreary mine was. We were busy sticking to traditional standards as the world around us was changing without us noticing.

These days we cover a wider range of subjects – crime and lifestyle interests – all in a livelier, brighter, cleaner, more cleverly written way. I like to think I’ve been part of our move to a less formal, more relaxed and conversational writing style. The old-timers would be appalled to see us saying “kids” rather than “children”.

The Herald is far from perfect – no “first draft of history” ever is – but I value being at the more careful, intellectually respectable and, dare I say, gentlepersonly end of the news media. I feel privileged to write for such a well-educated audience.

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Monday, April 5, 2021

Wealth and happiness don't give meaning to our lives

Easter Monday’s a good a time to reflect on what we’re doing with our lives and why we’re doing it. I’ve been banging on about all things economic for more than 40 years, but if I’ve left you with the impression economics and economic growth is the be-all and end-all, let me apologise for misleading you.

The more I’ve learnt about economics, the more aware I’ve become of its limitations. Economics is the study of production and consumption, getting and spending. But as someone connected with Easter – not the Easter Bunny – once said, there’s more to life than bread alone.

Unfortunately, the conventional way of thinking about the economy has pretty much taken for granted the natural environment in which our economic activity occurs, and the use of natural resources and ecosystem services on which that activity depends.

We’re learning the hard way that this insouciance can’t continue. We’re damaging our environment in ways that can’t continue. I keep writing about the need for economic growth because, as the economy is presently organised, it’s pretty much the only way to provide sufficient jobs for our growing population.

But that just means we need to redefine economic growth to mean getting better, not bigger (and probably should do more to limit world population growth).

Conventional economics focuses on the material aspects of life: producing and consuming goods and services; buying and selling property. There’s no denying the inescapable importance of the material in our lives – “bread” – but conventional economics encourages our obsession with material accumulation at the expense of other important dimensions of our lives.

Some aspects of economic activity can damage our physical health – smoking, drinking, burning dirty fossil fuels, even eating fast foods – but we need to become more aware of the way the fast pace and competitive pressures of modern life also threaten our mental health. Too many people – particularly the young – suffer chronic stress, anxiety, depression and suicidal thoughts.

Too much emphasis on material success can also come at the expense of the social aspect of our lives – our relationships with family, friends and neighbours – which, when we’re thinking straight, we realise give us far more satisfaction than any new car or pay rise. Economists often advocate policies that will increase the efficiency of our use of resources without giving a moment’s thought to their effect on family life.

Nor should we allow our pursuit of material affluence to come at the expense of the moral and spiritual aspects of lives. I’ve just read social commentator Hugh Mackay’s book, Beyond Belief, which has done so much to clarify my thinking about Christianity, religion and spirituality that I’m sorry I didn’t get to it earlier.

Yet another thing that mars conventional economic thinking is its emphasis on the individual as opposed to the community, it’s effective sanctification of self-interest as the economy’s only relevant driving force, and its obsession with competition and neglect of the benefits of co-operation.

Mackay says that, if you ignore the doctrines and dogmas of the church – all the things you’re required to believe in – and focus on the teachings of Jesus, the first thing to strike you is that none of it was about the pursuit of personal happiness.

“The satisfactions offered or implied are all, at best, by-products of the good life,” he says. “The emphasis is on serving others and responding to their needs in the spirit of loving-kindness, the strong implication being that the pursuit of self-serving goals, like wealth or status, will be counterproductive.”

Jesus’ teachings “were all about how best to live: the consistent emphasis was on loving action, not belief. According to Jesus, the life of virtue – the life of goodness – is powered by faith in something greater than ourselves (love, actually), not by dogma.”

Mackay says we should “avoid the deadly trap of regarding faith as a pathway to personal happiness. The idea that you are entitled to happiness, or that the pursuit of personal happiness is a suitable goal for your life, is seriously misguided.

“If we know anything, we know that’s a fruitless, pointless quest – doomed to disappoint – because . . . our deepest satisfactions come from a sense of meaning in our lives, not from experiencing any particular emotional state like happiness or contentment.”

The self-absorbed mind’s entire focus is individualistic. It’s “the polar opposite of the moral mind. Its orientation is towards the self, not others; its currency is competition, not cooperation; it’s all about getting, not giving. Its goal is the feel-good achievement of personal gratification, however that might be achieved and regardless of any impact it might have on the wellbeing of ‘losers’.”

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Saturday, April 3, 2021

Cutting workers' pay and conditions worsens productivity

It’s a long weekend, so let’s relax and think more laterally than usual. I’ve been pondering one of the great mysteries puzzling the rich world’s economists: why has there been so little improvement in the productivity of our businesses over the past decade or two?

I’m wondering if a big part of the explanation is that business people have been finding easier ways to make a bigger buck.

Economists worry about productivity – producing more output of goods and services from a given quantity of inputs of labour, physical capital and raw materials – because it’s the secret sauce that’s made market capitalism so hugely successful over the past 200 years. That’s made us many times more well-off materially than we were back then.

The key driver of productivity improvement is technological advance: mainly bigger and better machines, but also better roads, railways and other infrastructure, as well as more efficiently organised farms, mines, factories, offices and shops. Not to mention increased investment in “human capital”: better educated and trained - and thus more highly skilled - workers.

You’d expect the digital revolution that’s working its way round the economy – disrupting industry after industry while creating new or improved products that meet customers’ needs much better – to be causing a marked improvement in productivity, but it’s not showing up in the figures.

So, why has productivity – most simply measured as gross domestic product per hour worked – been improving much more slowly in the past decade or two than in earlier times, not just in our economy but in all the advanced economies? Why is our material standard of living improving only very slowly – if at all?

As I say, that’s something economists are still debating. But I’ve been thinking much of the explanation may lie in the changed way our business people are going about their business.

If you listen to the business lobby groups, productivity isn’t improving because of successive governments’ failure to “reform” the economy. Nonsense. A moment’s thought reveals that the efficiency with which inputs are turned into outputs is determined primarily by the collective actions of each of the nation’s businesses.

Firms improve their productivity as part of their efforts to increase their profits. But their ultimate goal is higher profits, not necessarily being more productive. And, since improving productivity can often be quite hard, I’ve been wondering if productivity isn’t improving much because firms have found easier ways of increasing their profits.

Such as? Just by cutting costs. Particularly the cost of labour. One way to cut labour costs is to install better labour-saving machines. Doing so does improve the productivity of the workers who remain – and will show up in the productivity figures.

But if you find ways to limit the increase in – or even cut – your workers’ hourly wage rate, this does nothing to improve your productivity, but does increase your profits. Many employers have moved from fixing their wage rates by “collective bargaining” – which involves workers pressing for higher wages by having their union threaten to go on strike – to “individual contracts”, which often involve no bargaining at all.

Or you could cut your labour “on-costs” (including sick leave, annual leave, workers compensation insurance and superannuation contributions) by changing your workers from employees into (supposedly) independent contractors.

This, of course, is a big part of the motive for the rise of the “gig economy”. And there must surely be cost savings associated with the use of labour-hire firms.

Businesses have become a lot more conscious of the costly risks involved in running a business. They’ve sought better ways of “managing” those risks – which, in practice, has often involved shifting risks from the firm to its workers. For instance, moving to independent contractors shifts to workers the costs associated with the risks of them getting sick, being injured on the job, or even not having saved enough for retirement.

The move to firms carrying much lower inventories of raw materials and spare parts – “just-in-time” inventory management – means that the risk of interruptions to a firm’s supply chain can cause workers to be stood down on no pay until the problem’s fixed.

Yet another way firms have been saving on labour costs is by spending less on training their own workers and then, when they’re short of skilled workers, bringing them in from overseas on temporary work visas.

The trick is, these cost-saving measures don’t just fail to improve the productivity of labour, they can actually worsen it. Textbook economics sees firms continually comparing the cost of employing workers to perform tasks with the cost of using a machine to do it.

When wage costs are rising strongly, firms are more inclined to invest in labour-saving equipment. When wage costs are low or falling, however, firms become more inclined to avoid investing in machines and just hire more workers – even to perform quite menial tasks.

Before the pandemic, economists were continually surprised to see employment growing at a faster rate than the fairly weak growth in production (real GDP) would imply. That’s good news for employment but – as a matter of simple arithmetic - bad news for labour productivity: GDP per hour worked.

But it’s worse than that. For technological advances to improve our living standards, you don’t just need people inventing new and better machines, you need businesses across the economy regularly buying and using the latest, whiz-bang models to produce whatever it is they do.

That’s just what hasn’t been happening. As Reserve Bank governor Dr Philip Lowe noted recently, business investment in plant and structures has averaged just 9 per cent of GDP since 2010, compared with 12 per cent over the previous three decades.

Sometimes I think that, while businesses’ modern obsession with finding any and every means to minimise their wage costs no doubt fattens their profits in the short term, one day we’ll realise it’s been hugely destructive of our living standards.

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